NEW YORK The euro soared on speculation it had hit a short-term low on Wednesday but equity markets slid worldwide after Germany's move to ban some stock and bond trades unsettled investors.
The euro rose from a four-year low to notch its best one-day gain in more than a year as assets perceived as risky fell in price on concerns the German ban heralded tighter financial regulation, boosting risk aversion.
Traders bought the euro on speculation European monetary officials may act to support the single currency, lifting it from a session low -- $1.2143 -- last seen in April 2006.
The euro EUR=> gained 1.72 percent to $1.239.
Longer-dated U.S. crude oil prices slid, gold dropped below $1,190 an ounce and industrial metal prices slumped as the German move fanned concerns about growth prospects in Europe.
Wall Street joined a wave of worldwide equity markets that fell after Germany's move on Tuesday triggered a sell-off in industrial shares, which have a heavy exposure to Europe.
"The markets never like governments interfering in what they regard as the efficient running of markets," said Bill McNamara, an analyst at Charles Stanley in Sweden.
"It just doesn't settle the nerves in the way politicians seem to think it will. Investors should continue to expect high levels of volatility," he said.
The MSCI all-country world equity index .MIWD00000PUS was down 1.7 percent, while the more volatile emerging markets index .MSCIEF fell 3.1 percent.
The Dow Jones industrial average .DJI> closed down 66.58 points, or 0.63 percent, at 10,444.37. The Standard & Poor's 500 Index .SPX> ended 5.75 points, or 0.51 percent lower at 1,115.05. The Nasdaq Composite Index .IXIC> finished down 18.89 points, or 0.82 percent, at 2,298.37.
Not all was perceived as bad news on Wall Street.
The S&P 500 bounced off its 200-day moving average shortly before noon, a key technical level it breached that should provide support going forward.
Market talk on potential meetings or action by the European Central Bank helped the euro to reverse course.
A European Central Bank spokesman, however, declined to comment on market rumors of fresh central bank action.
"We've got this rally in the euro and I think it's the market's understanding and fear that the G7 is concerned about the speed of the euro's decline," said Dean Popplewell, chief currency strategist, at OANDA in Toronto.
"The market is worried or is anticipating some sort of verbal intervention or even a multilateral currency intervention to boost the euro."
The dollar fell against a basket of major currencies, with the U.S. Dollar Index .DXY> down 1.01 percent at 86.281.
Against the yen, the dollar JPY=> was down 0.65 percent at 91.52.
U.S. gold futures for June delivery GCM0> settled down $21.50 at $1,193.10 an ounce.
U.S. crude oil futures for June delivery settled up 46 cents at $69.87 a barrel, and surged at the close to a session high $71.22.
Crude oil futures further out fell.
U.S. Treasury debt prices fell on Wednesday, giving back earlier gains after the major stock indexes rose from session lows.
The benchmark 10-year U.S. Treasury note US10YT=RR fell 3/32 in price to yield 3.37 percent.
Treasury prices had risen earlier in the day after European stocks hit their lowest closing level in nearly two weeks.
The MSCI index of Asia-Pacific shares outside of Japan .MIAPJ0000PUS dropped 3.3 percent, while Japan's Nikkei average .N225 closed down 0.5 percent, its weakest finish in 11 weeks.